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The Keynesian transmission mechanism is the process whereby changes in the monetary sector (increase or decrease in the interest rate i) have an impact in the real sector, by increasing or decreasing Investment (I), otherwise known as Capital Formation.

There is an inverse or negative relationship between the two - this means that as the interest rate i increases, the capital formation or investment in the economy I decreases.

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Q: What is Keynesian Transmission Mechanism?
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